Industry

Manufacturing

The German economy is essentially a processing economy. This was true
of both West Germany and East Germany before unification. It will remain
true in the future, although the detailed shares of GDP remain to be
determined by unification and may not be clearly evident until the mid-
or late 1990s.

Before unification, 40 percent of the German workforce was involved
in manufacturing, with the main industries being machine tools,
automotive manufacturing, electrical engineering, iron, steel,
chemicals, and optics. Although the industrial sector in the former East
Germany is still evolving, manufacturing in that part of Germany is
expected to concentrate in the same industries over time. Thus, the
future German economy will retain a powerful industrial component that
will likely total well above 30 percent of German GDP.

Almost all areas of western Germany have some industry. The main
industrial areas are the Ruhr district in North Rhine-Westphalia, the
traditional center of German coal, steel, and heavy industry; the
concentration of industry around several large cities, such as Hanover,
Munich, Frankfurt am Main, and Stuttgart; the chemical production areas
that stretch mainly along the Rhine River in Baden-Württemberg and
farther north; and the automotive manufacturing centers, increasingly
concentrated in southern Germany in Bavaria and Baden-Württemberg.

In eastern Germany, the main industrial manufacturing areas are in
Saxony, Saxony-Anhalt, and Thuringia, principally concentrated in the Leipzig, Dresden, Halle, and Chemnitz regions. Before World War II,
Saxony was the technology center of Central Europe. The Elbe River, like
the Rhine, attracted chemical and other industry along its shores. It is
uncertain which eastern German industries will survive, but the firms in
the southern part of the region appear to have better chances than those
farther north. Even before unification, more industry was concentrated
in the south than in the north. The districts in northern East Germany
had industrial employment below 25 percent, those around Berlin had
industrial employment between 25 and 35 percent, and those south of
Berlin had over 35 percent employment in industry. No such clear
geographical delineation for sector employment existed in West Germany.

The glory of German industry is not in the big firms that are well
known around the world, such as Daimler-Benz, Volkswagen, Siemens, or
Bayer (see table 16, Appendix). It is in the small- and medium-sized
firms that constitute what the Germans call the Mittelstand .
Although that term has political and social as well as management
connotations, it has been widely accepted to mean companies that employ
fewer than 500 workers. Such firms constitute 98 percent of all German
companies, hire 80 percent of all employees, are responsible for a
significant share of exports, and provide one of the firmest foundations
of the middle class.

The government has supported and furthered the Mittelstand ,
in part for political reasons, but also because it makes a crucial
contribution to the economy. The government has established special
provisions that permit those firms to cooperate if they do not thereby
hinder competition. It makes available special funds to promote research
and development by Mittelstand companies. After unification,
the government used investment and tax incentives to encourage Mittelstand
companies to invest in eastern Germany.

The single most successful German industry is mechanical engineering,
with a total turnover in 1991 of DM240 billion. Unlike many industries
in Germany and elsewhere, it is dominated by small rather than large
companies. It includes over 4,000 firms throughout Germany. Only 3
percent of the companies have more than 1,000 employees. German
mechanical engineering has a range of more than 17,000 products. Almost
two-thirds of the products are exported.

The best-known industry and the second-largest, with a turnover of
DM217 billion in 1991, is automotive manufacturing. Such companies as
Daimler-Benz, Volkswagen, and Bayerische Motorenwerke (BMW) are known
throughout the world. Almost half of all German-produced automobiles are
exported, mainly to other EU members and to North America.

Electrical engineering ranks third in importance among German
industries, with a turnover of DM207 billion in 1991. The biggest single
firm is Siemens, although Bosch also ranks among Germany's largest
companies. Products range from giant electric generating turbines
exported all over the world to smaller electric engines and some
consumer goods.

The chemical industry, with a total output of DM166 billion in 1991,
is based principally on three large corporations that have been leaders
in the field for 100 years--Hoechst, Bayer, and BASF. There are also
many medium-sized companies. About one-half of the industry's products
are exported.

Other important industries are the traditional German industries of
steel and coal mining, both heavily subsidized and still large
employers. Precision engineering remains a strong area. Aerospace is a
small but growing industry, also heavily subsidized, and German
companies often join with companies from other EU countries--such as
Airbus and military aircraft production (see fig. 10).

One reason to believe that the eastern and western portions of the
united Germany will again knit together into one large manufacturing
economy is that such an economy has been part of the German tradition
for centuries and that both Germanys have specialized in the same
general industrial sectors. Some analysts contend that the eastern
economy will even have a competitive edge later in the 1990s because of
the vast sums being invested in modernizing its industrial plant.

Energy and Natural Resources

Like most modern states, Germany relies principally on fossil fuels
as sources of energy. About 40 percent of German energy consumption
comes from petroleum, largely for trucks and automobiles. About 30
percent comes from domestic coal deposits, half from lignite, or brown
coal, in the east and the other half from anthracite located in the
west. Natural gas provides about 17 percent of energy consumed, and
nuclear energy about 10 percent. Other sources of energy, such as
hydroelectric, solar, or wind-powered electric power plants, are
relatively insignificant. Most production is in private hands.

Electrical power comes almost equally from three sources: the largest
(31 percent) is generated by lignite, the next largest (28 percent) from
nuclear reactors, and the third largest (26 percent) from anthracite.
Natural gas provides about 7 percent. Those proportions will undoubtedly
shift over time because of the high pollution levels generated by the
relatively inefficient lignite, especially in the new Länder ,
where it accounts for over 90 percent of electricity production (see
table 17, Appendix). The public's aversion to nuclear power that
developed in Germany in the 1980s will likewise cause this source of
power to become less important. Natural gas will become more
significant.

The necessary reduction of brown coal consumption is unfortunate for
the nation's economy because it and anthracite are Germany's only
significant natural resources. As of 1993, Germany was the world's
largest producer of brown coal, mining nearly twice as much as the next
greatest producer, Russia. Anthracite mining is also significant, and
Germany was the world's ninth greatest producer of this substance in
1993.

Germany has over twenty nuclear reactors, most of them small and
having production levels below 2,000 megawatts per reactor. It has
virtually no domestic uranium deposits and must import enriched uranium
for its reactors. Most of the reactors in operation in the early 1990s
were built during the 1970s and early 1980s. Reliance on nuclear power
has become controversial, however. Because of the controversy, no new
nuclear reactor has entered service since 1988. A number of older
reactors dating to the 1960s have ceased operations. A major
international energy crisis would be needed to renew impetus in
Germany's nuclear energy program because the country is densely
populated, and most of its inhabitants do not want a reactor near their
houses or offices.

Germany must import almost all the oil and gas that it uses. In 1993
the three largest suppliers of crude petroleum were Norway (18.4 percent
of the total), the Commonwealth of Independent States (CIS--see
Glossary) (17.4 percent), and Britain (12.4 percent) (see table 18,
Appendix). Germany has its own modest oil deposits, estimated in 1990 at
50 million tons, in the North German Plain. It has a share of North Sea
gas reserves and production, with reserves estimated in 1990 at 9.9
billion cubic meters. But these are not adequate long-term sources.
Thus, Germany will increase its imports of oil and gas, most likely from
Russia. East Germany relied heavily on Soviet gas before unification,
and united Germany will want to purchase petrochemicals from Russia to
enable Russia to pay for the German manufactures that Russia is
purchasing.

Like all modern economies, Germany has become increasingly cost
conscious and conservation conscious about energy consumption. Whereas
GDP in West Germany rose by about 50 percent from 1973 to the early
1990s, energy consumption rose by only 7 percent.